Euro-area finance ministers will meet in Copenhagen on March 30 to weigh whether to expand the 17-nation region’s financial crisis firewall. At stake is the future of the region’s two rescue funds, the temporary European Financial Stability Facility and its permanent successor, the European Stability Mechanism.
The current ceiling on overall rescue lending is 500 billion euros ($661 billion), which is the size allotted to the ESM. It can be changed at any time by mutual agreement of euro-area finance ministers, who have said they will decide on a strategy by the end of March.
The EFSF has committed 192 billion euros so far to rescue programs in Greece, Ireland and Portugal, leaving 248 billion euros uncommitted out of its 440 billion-euro total capacity. It also has two leverage programs that so far have not been requested or used.
Here is a summary of some of the options under discussion:
* Do nothing: The rescue ceiling would stay at 500 billion euros and the EFSF’s 192 billion euros in commitment would be deducted from that total. So the ESM would have 308 billion euros of emergency capacity remaining.
* Partial combination: Raise the rescue ceiling to 692 billion euros, to include the ESM and also the EFSF’s existing 192 billion euros in commitments. This way, the ESM could start fresh with its full 500 billion euros available.
* Maximum combination: Raise the rescue ceiling to 940 billion euros by adding the EFSF’s uncommitted 248 billion euros on top of the 192 billion euros that have been committed and the ESM’s 500 billion euros. Of the total rescue amount, there would be 748 billion euros available for new projects through June 30, 2013. At that point, the EFSF will no longer be able to make new loans. The ceiling would then be reduced to the ESM’s 500 billion euros plus the total of EFSF lending by that time.